China and Israel are celebrating 20 years of diplomatic
relations this year, and now market access is much easier. These new
opportunities have fostered tough competition. Yet, after three decades of
development of labor-intensive industry in the coastal regions, a new call from
the government has been announced.

According to Beijing’s latest “Foreign
Investment Catalogue,” the message is clear: the Wall is down. It’s time to
bring smart and green ideas to China and to look for new
opportunities.

China’s official economic planning department, the
National Development and Reform Commission (NDRC), publishes a Foreign
Investment Catalogue every few years. It provides a guideline for foreign
investment and market openness strategies by putting investment in three
baskets: encouraged, allowed and restricted. Introduced by the NDRC and
the Ministry of Commerce in 1995, the Foreign Investment Catalogue has been
revised four times. On December 31, the NDRC published its latest version,
replacing the one published in 2007.

The update revolves around three
concepts. First is furthering openness and transparency for foreign
investors. Second is restructuring the direction of foreign investment by
targeting highend manufacturing, new energy, agriculture and advanced service
industry. The third is encouraging investment in Central and Western
China.

What does the update mean for the “start-up nation”? First,
Israeli companies enjoy global strength in both hi-tech and clean-tech, which
overlaps beautifully with China’s focus on clean-tech. The sky-rocketing
acceleration of clean-tech investment in China reached a historical high in 2011.
Financing for China’s clean energy industry for 2011 was already up 124.95
percent from 2010’s total by November 2011.

The Climate Group estimates
that clean energy investment in China totals $1.399 billion, covering 51 deals
with an average of about $27.43 million per deal. While the money is pouring in,
the substance of investment is changing. The emphasis in clean-tech investment in
China has shifted from wind and solar energy to energy efficiency, pollution
inspection and management technologies.

Major Chinese investors have
begun to take note of this trend. One executive from Legend Capital – the
venture capital arm of Legend Holdings, which also owns Lenovo – commented at a
conference last year that solar and wind power industries remain difficult to
profit from. He then announced a new direction for the fund: After recently
raising about $1b., Legend Capital would allocate a significant portion of its
portfolio to clean-tech, with a focus on next-generation battery
technology.

On the other hand, as preferential policies for foreign
investment in the South and more developed parts of China have been replaced,
the frontier of regulatory support is moving to Central and Western China to
balance development. In this process, foreign investment should assist the
region’s technology upgrading and industrial restructuring. This is another
chance for Israeli companies, especially those left out during the first decade
of the China boom. One city to highlight for Israeli investment is Chengdu, the
capital of Sichuan province.

Mostly known by Israeli backpackers as “the
land of Pandas,” it also is the economic powerhouse of Western China and boasts
a tenfold increase in foreign investment over the past decade. Its friendly
attitude toward Israeli business started on May 16, 2008, when only four days
after the devastating earthquake, diplomats from the Israeli Embassy visited the
epicenter and made one of the first donations to the area. Local gratitude
translates into a warm welcome and low entrance barriers for Israeli
business. Israeli Ambassador Amos Nadai is an honorary citizen of
Chengdu, and the city hosts the Chengdu-Israel Forum, one of the first of its
kind in China. This close relationship is morphing into a lasting marriage for
business and government from both sides.

Unfortunately, understanding the
Chinese market remains daunting for Israelis. Protection of intellectual
property is a huge concern, although the situation is improving. Mismatching and
misunderstanding of investment objective also poses an obstacle in partnership
building. The cultural difference and the lack of knowledge of each other form
an impediment to successful business relations.

To most Chinese, Tel Aviv
sounds like an Eastern European country, while Israeli chutzpah is troublesome
in a Confucian society where patience, tolerance and humility are key. It is not
hard to imagine how for most Israelis, surviving the torturing and humiliating
process of getting through layers of bureaucracy in China can be difficult and
slow. Longterm relationship-building should be on the agenda of both
countries.

It is possible to bring the “green menorah” over the Great
Wall to the inner heart of the Middle Kingdom. Israeli technologies have the
potential to capitalize hugely from China’s latest movement. It will
require some time, and some patience. Let’s keep the oil burning.

The
writer is a fellow in the Israel Asia Leaders Fellowship at the Israel-Asia
Center (www.israelasiacenter.org). He is studying environmental economics and
green energy policy at Tel Aviv University as part of his master’s degree
program at Yale University, and is developing a platform to promote Israel-China
cooperation in clean-tech investment. He can be reached at [email protected].

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